Syndication of Commercial Real Estate for Beginners
When I started working in commercial real estate, I thought there was only one way:
Save money for years so that you finally have enough money to close the deal yourself. I thought so too until I learned about real estate syndicates. I've found a way to grow our investment portfolio bigger and faster while using less cash. This is a beginner's guide to commercial real estate syndication.
What Is a Commercial Real Estate Syndication?
Commercial real estate syndication is a way for investors to pool their funds to acquire larger and more stable assets than they could have acquired individually. Because this is an investment offering, real estate syndicates are regulated by the Securities and Exchange Commission (SEC), and all offerings must be filed and reported to the SEC.
The advantages of real estate syndication are:
- Major assets and projects.
- Improved stability by increasing volume and position.
- Less spending out of pocket if you're a syndicator or business sponsor.
- Completely passive real estate investment and cash flow when investing with a sponsor.
- Can support local professional management.
- All tax benefits, mandatory write-ups and write- downs, and real estate investments.
There are two different roles that you can play in real estate syndication, depending on your level of commitment.Investor or Deal Sponsor. The deal's sponsor, also known as the "syndicator" or "general partner" (GP), is an active part in the investment, and the investor, also known as the "limited partner" (LP), is the passive party in the investment.
There are two basic types of syndication in real estate:
506(b) and 506(c). They are often referred to as what investors are generally permitted to invest in.
There are various ways to set up a real estate syndication. I recommend keeping your offer as simple as possible to ensure complete transparency and avoid confusion at any point in the process.
Syndications can be divided into general and limited partners in many ways. This split can be viewed as pure fairness or progress by GP, depending on the group and its goals. Is there any risk in investing in a real estate syndication? Absolutely!